Patents and Innovation Economics

The excellent book Great Again by Henry R. Nothhaft with David Kline points out that in the middle 19th century:

Foreign observers attributed much of the country’s (U.S.) rapid technological progress to its distinctive patent system. Quite revolutionary in design at inception, the U.S.patent system came to be much admired for providing broad access to property rights in new technological knowledge and for facilitating trade in patented technologies. These features attracted the technologically creative, even those who lacked the capital to directly exploit their invention . . . and also fostered a division of labor between the conduct of inventive activity and the application of technical discoveries to actual production. It is no coincidence that Britain and many other European countries [later] began to modify their patent institutions to make them more like those of the Americans. (emphasis added)

They point out that in the U.S 85% of all patents were licensed by their inventors, while only 30% of patents in Britain were licensed. In the late 19th centuryU.S. inventors were increasingly operating as independent inventors who extracted returns from their discoveries by licensing or selling their patent rights. Among these inventors were Edison, Bell, Tesla, etc. “An astonishing two thirds of all America’s great inventors in the nineteenth century were actually NPEs” (Non-Practicing Entities). But today’s modern Luddites would call these great inventors trolls. They claim all value is created by production and marketing or if they are economists they claim all value is create by manipulating monetary instruments and deny the source of all human values, the mind. They denigrate inventors who demand a return on their efforts as imposing a tax on innovation. Invention is the only source of per capita increases in wealth.

The book asks:

Does it really make sense to consider Edison a “patent troll” just because he licensed most of his inventions rather than commercializing them himself? As the inventor of electric light and power, the phonograph, and many other world-changing new technologies, his contributions toAmerica’s economic progress are beyond dispute.

Is there any evidence of a patent litigation (troll) explosion?

Judge Michel former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand. Only about 100 of these suits ever go to trial. In a technology based economy with over 300 million people and 1 million active patents this is trivial.

The reality is the Patent troll/ litigation crises is a very clever marketing ploy by large multinational companies that want to be able to steal U.S.inventors’ technology. The America Invents Act will put the final nail in the coffin of U.S.innovation if it passes, by making it even easier to steal U.S. innovation. It is a product of these same multinational companies that are not interested in vitality of the U.S.economy, but in their short term profits.